Golar LNG Partners LP
Q3 2019 Earnings Call Transcript

Published: 26 Nov 2019

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Golar LNG Partners LP 3Q, 2019 Conference Call. At this time, all participants are in a listen only mode. I must advise that this conference is being recorded today. I'll now like to hand this conference over to your speaker today, Graham Robjohns. Please go ahead.

[Graham Robjohns:]

Thank you and good day, everybody. And welcome to Golar Partners' Q3, 2019 results presentation. As the operator said, my name is Graham Robjohns. And I am joined here today by our Head of Investor Relations, Stuart Buchanan.Before we start the presentation, I would encourage participants to read through page two, forward looking statements in your own time.Turning over to Slide 3and our recent highlights. At $35.9 million, our operating income was broadly in line with the second quarter. This result does not, however, include our interest in the operating results of Hilli Episeyo or the capital element of the Golar Freeze contracts, which is now classified as a sales type lease and disclosed as interest income. We generated distributable cash flow of $33.6 million with a distribution coverage ratio of 1.18x as compared to 1.12x for the second quarter.Very pleasingly we had a successful quarter in terms of re-contracting our vessels. We secured a two-year charter for the LNG carrier, Golar Maria commencing November 2020, as well as additional short-term charter coverage from October to April 2020. And we also received a notice of contract awards for two years for the FSRU Golar Igloo commencing March 2020. And that has a one-year option period.Turning over to Slide 4 and our income statement. Our net income for the third quarter was $7.9 million as compared to $ 5.5 million loss in the previous quarter. Operating results taking into account the Golar Freeze capital element of its charter which is now, as I've said included in interest income was a slight improvement on the previous quarter. However, interest rates continue to fall during the quarter creating another net non-cash interest rates swap valuation loss of $10.9 million. Although this was a significant reductions in last quarter's loss of $26.5 million.Turning over to Slide 5. Here we set out segment information in order to make a better comparison of our operating results. We have included on this slide some segment information which shows adjusted EBITDA inclusive of the Golar Freeze and our share of Hilli Episeyo. As you can see adjusted EBITDA was up from last quarter to $79.5 million at $81 million.Slide 6 has our balance sheet assets, which there were not any significant movement. So we will move over to slide 7 and balance sheet liabilities. At the end of the quarter, our adjusted net debt was $1.551 billion. And this includes $430 million of associated debt associated with the Hilli Episeyo. At the quarter end, the percentage of debt swapped to a fixed rate was approximately 98% and the average fixed rate, interest rate swaps related to bank debt is approximately 2.2% with an average remaining period to maturity of 3.3 years. So we remain well protected from interest rate variability.With improved EBITDA, our net debt to annualize EBITDA has improved again from last quarter to level 5x and now stands at 4.8x.Turning over to the next side which is our distributable cash flow. Our distribution coverage ratio has improved for the second quarter running from 1.01 to 1.18 for Q3. We also expect Q4 coverage to be approximately in line with this despite Igloo finish -- Golar Igloo finishing one-month early this year at the end of November. This is expected to be compensated for by an improved contribution both Golar Maria and Golar Mazo. A new contract for both Golar Maria and Golar Igloo, declare of cost extremely important to underpin our distribution coverage going forward. As will new contracts to Golar Spirit and Golar Mazo which we continue to work hard on.On Slide 9, we set out revenue backlog which has at the end of the third quarter including additions for the Maria and Igloo was $2.14 billion. As I've already said the new contracts for Maria and Igloo are extremely pleasing and we continue to work hard on looking for business for the Spirit and the Mazo.Slide 10 shows the revenue breakdown of the partnership's earnings equally important to our revenue backlog is the nature and source of that revenue. The growth above highlights the point that the vast majority of our revenue is secured by way of long-term contracts. These form the basis of a strong financial foundation from which growth can be achieved organically or by acquisition. 60% of our income is contributed by our FSRUs and 32% of our income from Hilli Episey. These contract runs for another seven years. 8% of our income is from shipping and mostly represented by the long-term contract which Methane Princess is currently servicing. This contract remains in place until 2024.Moving over to the next slide and a little bit on ESG. We believe Angola that we have a very strong ESG story, and Angola group. Both The MLP and Golar LNG Limited have been working hard over the last several months to develop our reporting and KPI's. We believe that natural gas as a critical role to play in providing cleaner energy for many years to come. Gas is a highly complementary companion fuel to renewables. It provides significant emission savings compared to other fossil fuels in most relevant and remote communities that currently have little choice on how they create energy. Our business provides people with cleaner energy at less cost.In addition, all of our vessels run on LNG and we have innovative energy-saving solutions on both our FLNG and FSRU vessels in particular. We will focus on ESG reporting. We will focus our ESG reporting on what really matters to us. We have identified five key focus areas which you can see on the right-hand side of this slide. And we expect to formally start reporting during 2020. We firmly believe that the Golar ESG stories an important one to explain to investors and the wider world.So moving over to Slide 11. And in summary, the shipping markets are bullish and we have used the opportunity to contract out the Golar Maria. We have some short-term successful with the Golar Mazo. And our task now is to find longer-term business for it. The FSRU market has also developed in a positive way stimulated we believe by low LNG prices and increasing interest in small-scale downstream distribution. We're extremely pleased with the new contract award to the Golar Igloo. And we will continue our efforts to try and find employment for the Golar Spirit. We have a solid financial footing with $2.14 billion in revenue backlog. A solid distribution coverage ratio of 1.18 and uh falling net-debt-to-EBITDA ratio.Thank you and with that I will hand back to the operator to open up for Q&A.

[Operator:]

[Operator Instructions]First question is coming from the line of [Indiscernible]. Please go ahead.

[UnidentifiedAnalyst:]

Yes. Thank you and good afternoon. So I like to see the coverage ratio looks pretty -- look better than we've seen in the past to 1.2. That being said, the stock continues to kind of languish here. At a certain point how should we be thinking about supporting the stock price through with cash flow from operations? How should we be -- how at least are you thinking about that? Some companies say that, hey, at certain level we're buying. I mean are you comfortable saying at a certain point, hey, our stock is just too cheap here and we need to be funneling cash to support our stock price?

[GrahamRobjohns:]

While we do have a share buyback provision in place and we have bought few shares back over the quarter. But I think in terms of stock price and our business moving forward, I would say most importantly is the re-contracting of our vessels. Obviously, the Mazo and the Maria and Igloo are a really great start. And now we need to really focus on the Golar Mazo and the Golar Spirit.

[UnidentifiedAnalyst:]

Sure. And then just and then just a more of a bigger picture question. There's definitely been a fair amount of term contracts over the last call it 6-12 months but it seems like there -- and some are obviously a lot of those are new builds, but it seems like they're more for modern tonnage. What has sort of been the feedback from customers around the willingness to put term contracts around steam vessels? Is it really just a function of the reason-- we're just kind of curious why we're not seeing as many term contracts around steam vessels as maybe potentially we thought we might have?

[GrahamRobjohns:]

Well, to be honest I am not sure what the percentages, if you compare it. I mean in the LNG industry, you typically see kind of new Greenfield projects a reasonably or disproportionate percentage of new LNG carriers going to those new projects. But in terms of term business, I think you have seen that in the steam space maybe not for sort of 5, 7, 10 years but certainly term that. I mean the Maria is a couple of years and then a couple of years ago we contracted the grand on -- we had options and it was effectively up to a seven-year contract with two plus one plus one plus one plus one. So I think it's horses for courses as we say here in the U.K. Steam vessels are come in cheaper rates and for the sort of shorter haul business, where cargo size isn't paramount. And then they are still --they are still good business for them.

[UnidentifiedAnalyst:]

And then just one quick follow-up for me. When we think about the grand and those options, is there sort of timing around what when those -- when Golar needs to receive notification of those options? Or when you should expect to receive, if the first one is actually exercised?

[GrahamRobjohns:]

I think it'll be in the first quarter of 2020.

[Operator:]

Next question is coming from the line Randy Giveans. Please go ahead

[RandyGiveans:]

Good afternoon, guys. How's it going? Hey, so congrats on obviously re-chartering the Golar Igloo. Last call you mentioned the new contract would likely be below kind of current contract levels. So with that what are the terms in terms of either day rate or annual EBITDA contribution for the Igloo as well as for the Maria for day rate there?

[GrahamRobjohns:]

Yes. I think both are little bit commercially sensitive. We've put in the earnings release that if you add the revenue backlog of both contracts up together over the term period comes to about $95 million and the rates on the Igloo is lower than the previous rate and but it is for 10 - months period another nine-month period but the EBITDA number will still be a bit lower than previously. That's about as much as I can say I am afraid, Randy.

[RandyGiveans:]

$95 million basically for the divided by the 24 months, times too, three years for each, okay. And then just to clarify you mentioned the Mazo. What is the status of that? Is it waiting for a charter or are you going to operate it right now tomorrow in the spot market?

[GrahamRobjohns:]

She is operating right now in spot market.

[RandyGiveans:]

So already employed has a cargo.

[GrahamRobjohns:]

Yes. She has some short-term business. I'm not -- that is coming to a close shortly I think, but she has been operating for the last month 10 months or so on the short-term spot market charter.

[RandyGiveans:]

Okay and then last question. What would be the cost and timing taking the Golar Spirit out of cold layup? Would you operate it possibly as LNG carrier or you're just going to keep it in cold layup until it gets a contract to convert to an FSRU or use as a hub maybe for avenue or something like this? So may be cost and time and outlook.

[GrahamRobjohns:]

Time is a kind of a couple of months, few months. I don't think there is a likelihood that she operates as an LNG carrier but as an FSRU storage unit for regas then absolutely yes.

[RandyGiveans:]

Okay and the costs for that --

[GrahamRobjohns:]

And cost, well that kind of depends on, I mean, she would need to dry dock. But then it really depends on if there is any kind of incremental bits of kits required for the specific business.

[RandyGiveans:]

Sure but just looking at the dry dock couple million dollars?

[GrahamRobjohns:]

No. Maybe $5 million, $6 million something like that.

[Operator:]

The next question is coming from the line of Jonathan Chappell. Please go ahead.

[JonathanChappell:]

Thank you. Good afternoon, Graham. So first question was the Maria and the Igloo now squared away for next year and understanding the Igloo doesn't start until March. The coverage ratio has been inching up 1.18 now let's call it 1.2 gives you a little bit of buffer. Is there any significant drydocking or off-hire next year where you can foresee shortfall? And the coverage ratio given now that you only have the Spirit in cold layup and the Mazo in short-term stuff.

[GrahamRobjohns:]

No. The Golar Mazo will need to dry-dock next year. But no, that's not.

[JonathanChappell:]

All right. So coverage ratio above 1.1 yielded at 17%. Let me ask Greg's question maybe a bit of a different way. I mean I know you have the buyback authorization in place and hopefully maybe with some refinancing you can become a bit more aggressive on that. But at a certain point do you start to wonder is the 17% yields and you're just not getting paid for the contract coverage? The improvements you've made in the balance sheet and I understand there's probably an immediate negative reaction in the capital markets from a distribution part. But if you're not doing out of position of weakness and you're doing it because you're not getting any value for it and the cash can be spend otherwise. At what point do you --you've been doing this 40, 42 run-rate for over a year now. And at what point do you say we're just not getting the credit for it? And we need to put cash to better use.

[GrahamRobjohns:]

I mean I think it's difficult question to answer, John. I think we've been saying for a little while that number one priority is re-contracting our vessels and then see where we're at. I mean, obviously, this quarter has been a great step forward in that. And let's see where we get to you over the next few months with Spirit and Mazo. So and then -- yes and see where we are. I mean if we had a particularly Golar Spirit, if we had a significant contracts for her then that is going to make a dramatic difference to distribution coverage ratio. If the stock is still trading where it is then we'd have to some hard thinking I guess yes.

[Operator:]

Next question is coming from the line of Ben Nolan. Please go ahead.

[BenNolan:]

Thank you. That's fantastic acts there. I wanted to just clarify on the Igloo for the contract extension. Graham, you said it is on a 10-month basis similar to the nine-month basis now, but I guess January and February for the two extension years are on-contract. Does that right? Am I thinking of that correctly?

[GrahamRobjohns:]

That's right. Yes. So you it's the old contracts. You have a sort of three-month gap and this one's a two-month gap.

[BenNolan:]

Okay. And as it relates, again, just really for modeling purposes. So that $95 million takes into account 10 months of the year for that vessel along with the contract on the Golar correct.

[GrahamRobjohns:]

Correct, yes.End of Q&A

[Operator:]

There are no further questions at this time. Please continue.

[Graham Robjohns:]

Thank you, operator. And thank you everybody for participating in this call. We look forward to speaking to you next quarter. And for the -- those of who you in the U.S., I hope we haven't disrupted your Thanksgiving holiday too much. And wish you a very happy well. Thank you and speak to you in three months.

[Operator:]

That does conclude our conference for today. Thank you for participating. You may all disconnect.